By Jon Peterson
Greensboro, N.C.-based Bell Partners will soon start buying value-add apartments in Northern California for the first time for its commingled fund, Bell Institutional Fund VI. This information was stated in a board meeting document originating from the Pennsylvania Public School Employees’ Retirement System.
Assets in Northern and Southern California are new markets for the commingled fund manager and will represent no more than 20 percent of the portfolio for Fund VI. Its other target markets are Boston, Washington, D.C., Raleigh/Durham, Nashville, Atlanta, Charlotte, Orlando/Tampa, Ft., Lauderdale/Miami, Dallas, Austin and Denver.
The Bell target markets are expected to continue to benefit from stronger than average demand from apartment renters. This is driven by continued historically low home ownership rates, increasing household formation due to demographic trends, as well as anticipated employment and population growth in the regions.
Bell will be buying existing apartment assets in supply-constrained submarkets with access to major infrastructure and employment bases. These properties will likely be assets varying in size from 150 to 450 units.
The targeted returns for fund VI will net IRRs in the range of 11 percent to 13 percent. The properties will be acquired with cash and up to 65 percent leverage. The improvement strategies planned by the buyer will include better management operations, making physical renovations, acquiring assets in transitional neighborhoods and finding opportunities with pricing dislocations.
One of the new investors into Fund VI is the Pennsylvania Public School Employees’ Retirement System. The pension fund approved a new $75 million commitment into the commingled fund at a board meeting in early October of 2016. It is not clear what the total capital raise will be for Fund VI. The fund manager had completed a $425 million capital raise for Bell Institutional Fund V in June of last year.
Bell has a proven track record from its previous investment funds, according to a board meeting document from the pension fund. It stated that through June 30th of 2016, the net IRRs for Bell Fund IV are 18.8 percent and 15.5 percent for Fund V. The real estate fund manager is one of the largest apartment operators and renovators in the nation. It had a portfolio of approximately 23,000 units under renovation as of April of this year.